Blockchain is often described in terms that sound hyperbolic and larger than life — but not because the possibilities are overstated. Rather, it’s because the possibilities extend in so many directions. This technology, upon which all cryptocurrency is built, is now being used by companies ranging from Amazon to IBM, and soon, we should expect to see it implemented across industries.
The blockchain industry itself grew by 200 percent from 2015 to 2016, then again from 2016 to 2017, and it now boasts a market capitalization worth more than $100 billion. Setting aside all financial indicators, however, there are purely logical reasons to expect blockchain to further mature and proliferate.
Business depends on quality information. When that information is unavailable, opacity leads to uncertainty. Companies are forced to work with inaccurate or incomplete facts, which inevitably erodes trust and creates friction. Blockchain promises to help resolve this tension by promoting transparency and enabling better communication and collaboration.
From Abstract to Concrete
It’s important, first, to delineate between cryptocurrency and blockchain.
Cryptocurrency is essentially a digital store of value that can be earned within an economy and exchanged for goods and services. Blockchain, on the other hand, is the distributed ledger technology upon which cryptocurrency operates. All stakeholders get a digital copy of a transaction, and any and all changes are automatically recorded. Crucially, every entry in the ledger can only be altered by its original owner, which means all stakeholders have identical and essentially immutable information at all times.
All of that information is going to be important and disruptive to existing mechanisms. The applications extend to everything from personal data security to financial stability to marketing strategy, and the implications are profound. It’s not an overstatement to suggest blockchain is set to change business as we know it — although it is problematic to view it as a silver bullet that can solve all business problems.
Experts and enthusiasts have a tendency to speak about blockchain in abstract and technical lingo — which partly explains why the public’s appreciation of its significance is still lagging behind. Instead of evangelizing the theoretical impact of this innovation, let’s consider some of its real-world applications:
1. Enhance Speed, Precision, and Security in Finance
It’s only a matter of time before central banks begin to adopt cryptocurrency and blockchain technology en masse. As of last year, 90 percent of major banks across Europe and North America were examining the options this technology has to offer.
Project Jasper, an initiative that brings together the Bank of Canada and Payments Canada with partners in industry and academia, including TMX Group, was created to investigate the potential of blockchain technology to create an integrated securities and payment settlement platform. Though these investigations are far from over, the project has already completed three successful phases, most recently demonstrating the possibility of using a distributed ledger technology (DLT) platform to instantaneously complete post-trade settlement.
In areas where the risk remains high, researchers and developers have looked into the possibilities of new distributed ledger platforms to address security issues. The overwhelming majority of industry players are certain that blockchain will cause huge disruptions in banking and finance, due in part to the massive amounts of money such technology could save.
These are industries that depend on speed and precision, yet are known for delays and mistakes. Blockchain mitigates this issue by resolving transactions instantaneously and creating a transparent source of data for all involved. Banking professionals, business owners, and their customers can expect payment processing of all types to entail a lot less time and effort.
Improving efficiency is important, but reducing risk is where blockchain promises to make the biggest impact. Financial institutions are obligated to fulfill Anti-Money Laundering (ALM) and Know Your Customer (KYC) requirements. Both are time and labor-intensive processes with high consequences for error. But because blockchain creates an immutable record of information, the necessary due diligence takes banks a fraction of the time and leaves few gaps in the assessment. And thanks to the reduced risk, banks are free to offer a wider range of services to a larger number of users.
All bank users will benefit, but the 1.7 billion people currently without a bank account will see the biggest advantage. Being unable to conduct basic transactions creates huge financial obstacles while limiting economic opportunities.
It may be impossible for these individuals to open a traditional bank account, but the combination of blockchain and mobile technology could render that unnecessary. Because banks would no longer have to act as the arbiters of information, they could offer basic banking services without having to expand their own infrastructure.
Stock markets could see similarly sweeping improvements. The increased transparency could serve as a huge deterrent to criminal activity, while smart contracts and improved automated processes could cut out middlemen to save stock traders millions of dollars. Major exchanges are already exploring blockchain technology: for example, Nasdaq launched a new payment solution in partnership with Citi called Nasdaq Linq.
Blockchain, fundamentally, is a tool for resolving the complexity of finance at all levels. Consequently, it benefits banks and brokers as much as the consumers who rely on them. As new applications come online and blockchain helps uncover innovative ways to reduce risk, financial institutions can turn their focus increasingly on inclusiveness and accessibility.
2. Build Trust Through Heightened Transparency
Blockchain introduces a whole new paradigm for buying and selling goods. Traditionally, consumer-brand relationships had to operate on good faith alone. Companies told consumers that products were safe and high-quality, and because consumers had limited means to test and verify those claims, they were forced to buy the goods, hoping (but never knowing) they were all that was promised.
In the age of information, though, consumer confidence has been in decline — owing to a litany of stories about data breaches, tainted products, and corrupt corporate boards. As these attitudes become ingrained, they will turn into major obstacles to revenue for businesses big and small.
Blockchain helps reverse this scenario by creating better data sources. Where an “immutable ledger” really shines is when you’re looking at transactions that have multiple disconnected parties. Companies can use blockchain technology to audit the trail.
Think about gold or diamond mining in a developing nation. The miners source the ore, which gets shipped by another group of people to a third group for processing, and so on — all the way through to a company’s vault and ultimately to the end customer.
So how do the end customers actually know where the diamond came from and whether their diamonds are clean? After all, at any point, a conflict diamond could be introduced if the process is tracked by a corrupt party. By recording everything on a distributed ledger, any changes — such as the inclusion of conflict diamonds or the removal of small amounts of gold — would be flagged, and in the case of a discrepancy, third parties could retrace the entire production cycle. De Beers is already doing this, using BTL Group to track energy shipments.
And this isn’t limited to luxury purchases; consumers could even begin to track everyday goods they pick up at the supermarket. For instance, Walmart is currently testing a program with IBM to track the pork in its stores directly back to the specific Chinese farm where it was sourced. By being both rigorous in recording this information and transparent in providing it to consumers, Walmart hopes to improve food safety, lower liability, and cultivate consumer trust all at the same time.
With blockchain, pluck any product off the shelf, and it would be easy to trace its progress through each point in the supply chain. Consumers could shop with complete confidence, and if a problem did arise — such as the recent E. coli outbreak in romaine lettuce across the United States — its origin would be immediately apparent, which would allow companies to resolve the issue sooner.
3. Give Consumers Control Over Their Information
In May, the EU’s General Data Protection Regulation (GDPR) went into effect, and its enforcement will likely set some important precedents. Previously, a data breach was a public embarrassment and an expensive annoyance. But now that data privacy is on regulators’ radars and allowing it to be compromised is a crime, it’s going to be a major concern for companies worldwide.
Many are still scrambling to adapt to GDPR, and the costs of compliance are significant. Security is an obvious priority, but protecting massive repositories of data from myriad potential threats is a huge undertaking. Blockchain promises to make security verifiable and compliance achievable by introducing automated protocols.
Personal data could be stored in a blockchain. Individuals would then set protocols for which organizations could access what data. Users would have total control over their identity and maintain final say over access. The blockchain would be built according to GDPR standards, so that by agreeing to this model, companies would automatically become compliant. In doing so, they demonstrate to new and returning customers that they take data protection seriously and respect individual privacy.
Estonia has led the way on this issue with its pioneering eID program, which has been in effect since 2001. Citizens are given an eID number that is linked to an account containing essentially all of their personal information. The number is used to handle everything from banking to voting, streamlining a number of modern responsibilities. But because individuals are in control of their own accounts, they do not surrender the information to public or private entities.
Blockchain technology resolves some of the most pressing concerns about cybersecurity. More importantly, it alleviates the anxiety that future corporations will know and control the most intimate details about consumers. It restores agency to the public and relieves companies of the burden of controlling the public’s information — a burden that can be costly both in terms of resources and reputation.
Building the Future of Blockchain Starts Today
It’s difficult to overstate the potential of blockchain. At the same time, it’s dangerous to view it as a panacea to solve any business challenge or consumer complaint. Rather than searching for a “blockchain solution” to every problem, businesses must focus on problems where data integrity is the primary issue.
Similarly, blockchain is not a tool for dazzling consumers with cutting-edge technology. We shouldn’t expect to see a future in which the word “blockchain” is emblazoned across every bank and grocery store.
Rather, blockchain should be used to effortlessly enhance the customer experience. Consumers aren’t interested in using decentralized ledgers, but they are interested in understanding where their avocados come from. Companies trying to be successful with blockchain must deliver the benefits as clearly and directly as possible.
One way more companies could do this is by integrating blockchain technology within their platforms to incentivize certain behavior. For instance, the KodakOne platform enables users to digitally track the rights of content creators, facilitate payments using KodakCoin, and audit the production trail. LinkedIn or Facebook could similarly reward people for creating more engaging, higher-value content with a proprietary cryptocurrency that they could then use to purchase goods and services within the social platform.
It’s shortsighted to think of blockchain as simply a tech tool. In reality, it’s a way to eliminate confusion and antagonism for the benefit of all involved. And as blockchain ecosystems mature, it’s possible — even probable — that the benefits will ripple far outside the consumer space.
The ability to use a currency within a microeconomy has significant potential in developing nations or regions of high corruption because it removes the reliance on governments and banking systems. In developed nations, however, we must consider the return on investment: How do you pay for infrastructure, education, healthcare, etc. if everyone stops paying taxes?
If crypto enthusiasts really wanted to better the world, they would create a cancer research coin that could be “mined” through philanthropic or medical contributions: working for a cancer research agency, treating cancer patients in a hospital or at an outpatient facility, or raising money for cancer research independently, for instance. If you could then convince major global businesses to accept these “cancer coins” at a discount to fiat currencies, people would be inspired to buy or earn these coins for everyday use.
It’s hard to go a day without reading about blockchain, but it’s more than just a buzzword and has far more potential than its cryptocurrency application. It’s an asset for everyone to take advantage of, whether you’re an entrepreneur, business owner, independent contractor, or end consumer. All of us should embrace a future where everything is conducted above board.
By Brady Fletcher for Due.com.